Monday, September 30, 2013

Proactive Climate Change Adaptation

In my 2010 book Climatopolis, I argued that induced innovation, migration, capitalism and competition will allow urbanites all over the world to adapt to the serious threat of climate change.   I predicted in that book that the free rider problem is insurmountable.  My time in Asia had convinced me that global GHG emissions will continue to rise irregardless of what the U.S does or does not do with respect to carbon mitigation. Adaptation isn't costless but its cost declines over time.

Let's go through the key claims one more time:

Induced innovation --- examples range from water desalinization to decentralized power generation to floatable homes to crops that are more heat and drought resistant.   Climate change will create the demand for solutions to our problems, and future billionaires will grow rich stepping up and delivering solutions. Innovations are public goods and once our engineers figure them out they will diffuse across the world.

Migration --- Look at a map --- different geographic areas face different challenges posed by climate change but the world is a big place with plenty of land.  There is "higher ground" and real estate investors have the right incentives to find such higher ground and build our cities there.  There is nothing inherently productive about our San Francisco or NYC today that couldn't be recreated in another place.

Capitalism --- global markets in agricultural goods guarantees that if drought or extreme heat devastates a given nation's agricultural output that it can trade with other producers who have a bounty crop.

Competition --- suppose that some urban mayors laugh off climate change as a "green joke" that they do not take seriously.  Such cities, by letting their guard down, will not be prepared for the shocks and risks that climate change will pose.  As firms and mobile households recognize the quality of life challenges such cities pose, they will "vote with their feet" and migrate away from such cities. This threat of exit of losing the skilled tax base will incentivize mayors (even those who laugh at the threat) to take the issue seriously.

One point that I did not discuss enough in Climatopolis is the death of inefficient policies being caused by climate change!  In the Southwest in cities such as Phoenix and Los Angeles,  water is priced "too cheap" for urbanites and this leads to waste with our ample green lawns in the middle of a desert.   Climate change will make such artificially low prices non-sustainable as the deadweight loss from these policies will soar. This will nudge local governments to pursue more efficient resource pricing.  Dumb policies are more likely to collapse as the social cost of these policies increase and climate change (by increasing drought risk) will expose the dangers of not letting free markets work and by falsely subsidizing natural resource consumption.

My only regret up to this point is that there hasn't been a serious debate between neo-classical economists and behavioral economists about climate change adaptation.   I think the broad issue of climate change adaptation offers the best test of the macro implications from behavioral economics.   Such a paper would build on Glaeser's Classic "Psychology and Economics" paper.

Some Answers to Some Repeated Questions?

Q. Won't natural disasters exacerbated by climate change kill us?

A.   The death toll from natural disasters declines as we grow richer.  Urbanization and free markets increase our income (look to Asia for evidence).

Q.    People seek out high amenity cities that are located in dangerous places such as the New Jersey shore.

A.  Coastal amenities are desired (I live 6 miles from the Pacific Ocean) but rational people tradeoff attributes of locations.  As we grow richer, we are willing to pay to avoid risk. 

Q:   The poor will suffer greatly from climate change.  

A:   The poor will suffer much less if they urbanize and have access to real time information about threats (the spread of cheap cell phones) and have access to electrification for cooling and refrigerating food.    

Q:  Climate change will cause war in poor nations.

A:   This is a tough counter-factual to answer.  If these nations urbanize and invest in electrification, they can mimic Singapore's growth strategy. It is 95 degrees and humid most days in Singapore yet this city/nation has unbundled proximity from the equator from poverty.  Why can't other cities mimic this strategy?